Here's Why You Should Opt For A Higher Down Payment
Saving for a down payment and waiting to reach an expected amount might take a little longer than you expected. But, believe us when we say, that in the end, it will all be worth the wait. A larger down payment is always considered to be a viable plan for a homebuyer. MakaaniQ lists reasons why you must wait and save for a big down payment.
Smaller home loan
If you can manage a big down payment, you can now look for a smaller home loan, which is easier to get approved and also, can be repaid early. This will have a rippling effect, lowered equated monthly installments (EMIs), lowered timeline, and lower money spent on interest rates.
Better loan-to-value ratio
The loan-to-value ratio is the lending risk-assessment tool that lenders use to approve loans. It is the ratio of the loan amount to the appraised value of the property. It is arrived at by dividing the loan amount sought by the total value of the property.
Lenders are known to give only 80 per cent of the loan you have applied for, there are only some that can take this percentage to as high as 90 per cent. In case you make a bigger down payment, you lower the risk for the lender and hence, can crack a home loan for the sum you applied for.
Less risk if selling in a slow market
If the down payment is big and the EMIs being paid is lower, selling the property in a slow market even without much profit will not hurt your finances. At times, homeowners tend to fence sit in a downsizing market because their mortgage cost becomes higher than the present price of the property. And, hence, becomes a financial burden on the owner. A substantial down payment makes the homeowner in a state of less risk.
Lowered risk of financial crisis
Monthly installments and additional rate of interest is a financial burden for every home loan seeker. Adding to that monthly expenses, unforeseen expenses and financial crisis can worsen the situation. With a larger down payment and smaller home loan EMIs you could lower the risk of facing any financial crisis. Hence, taking time to save big for a down payment is financially less stressful.